On a sunny mid-June afternoon, senior investment officers representing roughly $175-billion in Canadian investing assets shut themselves in a room together at CIBC's Toronto headquarters for nearly five hours, wrestling one big question with a multitude of answers: What forces will drive investment decisions in this country over the next couple of years?
This Chief Investment Officer Roundtable summit - set up by CIBC World Markets and involving the top investment strategists from CIBC, AGF Investments, McLean Budden, Standard Life Investments, Cumberland Private Wealth Management and Gluskin Sheff - stemmed from a realization reached by CIBC's top strategists: that the current investing environment is being dominated by big picture, global macroeconomic factors on a scale rarely seen before.
"We are in one of those periods where the big picture, from the top down, is driving most of the return," said Avery Shenfeld, chief economist at CIBC World Markets, in a post-mortem discussion with The Globe and Mail following the roundtable's lengthy closed-door session.
"We've really been in a period where risky assets have all been moving together, sometimes for the good and sometimes for the bad. So a sense of where things are going in the big picture becomes very critical in terms generating returns - more so in the past couple of years than in most previous times."
"I'll put a number on it," chimed in Peter Gibson, CIBC's chief strategist and head of portfolio strategy. "Over the course of the last year, about 62 per cent of the return from stocks in the aggregate was the result of the index move and the sector move, as opposed to the fundamentals of the company," he said. "That compares with a range that would normally be 20-30 per cent historically."
"We've gone through a period since 2007 when the macro background was driving almost everything," added Neil Matheson, senior vice-president of investment strategy at Standard Life Investments, who took part in the roundtable. "Diversification, as it has traditionally been viewed, has generally broken down."
CIBC World Markets' head of cash equities, Rik Parkhill decided to pull the CIO forum together after realizing that, at a time when the top investment strategists at the big asset-management firms - which form a who's who list of his investment bank's biggest clients - are all wrestling with the same macro issues, "they rarely get a chance to sit down with their counterparts" at other firms. Indeed, the summit was the first time some of the CIOs had ever met.
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"A big part of investing is trying to get inside other people's heads and figure out what it is they're thinking. So, to the degree that [you can gather]a bunch of people who have terrific backgrounds and you get some insight into where they're coming from, that's always helpful," said John Wilson, CIO at Cumberland.
"It's also important to have your own point of view challenged," added Martin Hubbes, CIO at AGF Investments. "In investing, it's not what you know or is common wisdom that gets you, it's the stuff you don't see coming."
And although the forum featured the sorts of disagreements, one-upmanship and ego clashes that you'd expect in a room full of strong personalities with strong opinions, the participants ultimately found a lot more uniting their views than dividing them.
"The biggest differences of opinion were not over what is going to happen, but over what would that in turn mean for returns on different assets," CIBC's Mr. Shenfeld said.
And the overriding consensus that emerged from the CIO roundtable? That we're in a global environment of high debts and de-leveraging that is likely to stifle potential returns over at least the next couple of years, if not longer.
"The expected long-term returns keep grinding down," Standard Life's Mr. Matheson said. "You have to find strategies or products where you can deliver more alpha, because the underlying return isn't going to be that hot."
David Parkinson